MORESCO CORPORATION
Q2 Financial Results Briefing for the Fiscal Year Ending February 2021
October 14, 2020

Event Summary[Company Name]

MORESCO CORPORATION[Company ID]

5018-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Q2 Financial Results Briefing for the Fiscal Year Ending February 2021

[Fiscal Period]

FY2020 Q2[Date]

October 14, 2020

[Number of Pages]

44[Time]

13:00 – 14:00(Total: 60 minutes, Presentation: 40 minutes, Q&A: 20 minutes)[Venue]Shinko Building 9F, Nihonbashi Building 1, 1-17-10 Nihonbashi, Chuo-ku,
Tokyo 103-0027[Venue Size][Participants]

15[Number of Speakers]

2
Motohisa Morozumi
Takashi Takeuchi

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CFO, Director, Senior Managing Executive
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Presentation
Moderator: Thank you for waiting. It is time to begin MORESCO Corporation’s second quarter financial results
briefing for the second quarter of the fiscal year ending February 2021.
Thank you for taking time out of your busy schedule.
First, let me introduce the attendees from the Company side. Mr. Motohisa Morozumi, Representative
Director, Executive Officer, COO.
Morozumi: Nice to meet you.
Moderator: Mr. Takashi Takeuchi, CFO, Director, Senior Managing Executive Officer.
Takeuchi: Nice to meet you.
Moderator: Regarding today's schedule, the Company is giving explanations at the beginning, and thenaccepting your questions.
Mr. Morozumi, you may begin.
Morozumi: This is Morozumi. We sincerely thank you for participating in the 63rd financial results briefing forthe second quarter of MORESCO amid the pandemic of coronavirus today. As I will introduce it later, I would
like to report first that we announced our full-year earnings forecast, which had not been decided until now,
yesterday. Also, I think there are some people who will be participating in this explanation meeting for the
first time, so this time I would like to give a little explanation of the Company at the beginning.
Now, I would like to give an explanation of our 63rd business results for the second quarter.

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First of all, as for the corporate profile, MORESCO is headquartered in Kobe, which manufactures and sells
chemicals such as special lubricants, hot melt adhesives, and liquid paraffin, as well as energy-device–related
products.

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Next, this is the Company history. In 1907, we established the Maruzen Oil Department, a lubricating oil dealer,in Kobe. In 1958, the Special Lubricants Division was spun off and the Matsumura Research Institute wasfounded. Subsequently, in 2009, the Company changed its name to MORESCO, and in 2011 it listed on theFirst Section of the Tokyo Stock Exchange, which leads us here.

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In terms of global expansion, we began operations in Thailand in 1995, followed by China in 2002, the UnitedStates in 2006, Indonesia in 2011, and India in 2017, with the production of special lubricants and hot melt
adhesives at seven overseas plants.

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5This is MORESCO's management policy and growth strategy. Under the concept of "contributing to thedevelopment of society as a specialist in water, oil and polymer," we have been bringing our numerous uniquemerchandises to the world to date.

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By application, sales in the automotive field were the highest, accounting for 41% of net sales. Hot melt
adhesives accounted for 17% of sales in the sanitary materials field. Sales of hard disk surface lubricants,
lithium-ion battery membranes, and other information devices accounted for 8% of sales.

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Next, we will introduce the products handled in each business field. We have five main business divisions. The
Special Lubricants Business handles lubricants and cutting agents, including high lubrication, high heat
resistance and high vacuum, used in environments requiring high performance or in harsh environments.
Major markets include the car and steel sectors.
In the Synthetic Lubricants Business, we handle hard disk surface lubricants that deliver better performanceeven with nano-level coating films, special grease-based oils that can maintain performance for long periods
in high-temperature environments, and lubricants for food applications.
In the Hot Melt Adhesives Business, we offer adhesive-based hot melts, used in hygiene materials like
disposable diapers, air filters for air purifiers, cardboards, packaging and other products, as well as stickingbased hot melts used in a wide range of fields, such as home delivery slips and labels.
In the Materials Business, we offer liquid paraffin for battery membrane used in lithium-ion batteries,
cosmetics and pharmaceutical applications, and sulphonate for metal processing and other applications.
In the Device Materials Business, we mainly handle high-heat-resistance, high-water-resistance sealants fororganic EL, as well as gas and steam permeability measuring equipment.

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8Next, we would like to explain the composition of consolidated net sales for each business division. In theSpecial Lubricants Segment, the sales ratio will be 46%, or JPY12.5 billion, for die-casting release agents,
mainstay products of cutting agents, flame-retardant agonists, mainly in the steel industry, and brake fluids
in other products.
In the Hot Melt Adhesives Business, mainly for use in hygiene products, sales accounted for 25% of net sales,
at JPY6.8 billion.
In the Materials Division, liquid paraffin and sulphonate accounted for 14% of net sales, or JPY3.7 billion in
net sales.
In the Synthetic Lubricants Segment, sales of surface lubricants for hard disks and lubricants for hightemperature accounted for 8% of net sales, JPY2.1 billion.

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From here on, we will move on to the settlement report, which is the main subject.
First, let me explain the business environment during this quarter. This graph shows the changes in thecontribution to real GDP by domestic quarter.
Real GDP fell by more than 8% from April to June due to the impact of the new coronavirus infection.

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10This is the trend of domestic monthly automobile production. The dark green line represents the result forthis fiscal year. In the first half of the fiscal year, from March to August, we saw production of 334 million units,
down 30% from the previous fiscal year.
Although it bottomed out in May and is on a recovery trend, domestic automobile production is currently
recovering to the 80% level compared to the previous fiscal year, and the impact of the coronavirus pandemic
is expected to remain until our fiscal year, February 2021.

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11Next, we look at trends in automobile production in overseas countries related to us. First of all, in China,
production volume in February fell by 80% compared to the previous year due to the impact of lockdown, but
recovered from April onward, and production volume has been higher than the previous year.
Cumulative production of 10.09 million units from January to June of the first half of the fiscal year of ouroverseas subsidiaries declined 17% from the previous fiscal year.
Next, in the US, our production stopped in April and fell by 99% compared with the previous fiscal year.
However, production has recently recovered to almost the previous year's level.
Cumulative production from January to June fell 40% from the previous fiscal year.

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12Next is the status of Southeast Asia and India. In India, due to the impact of a large-scale lockdown in April,
the number of units produced was virtually zero. Although there has been a gradual recovery trend since then,
the number of people with coronavirus infections peaked in September and remained at a high level.
The current production volume has recovered to around 20% YoY decrease, but we need to pay attention to
the future trends.
Cumulative production from January through June of the first half of the fiscal year of our overseas
subsidiaries declined 53% from the previous fiscal year.
Next, in Thailand, the economy has been on a gradual recovery trend since bottoming out in April. Although
the number of new coronavirus cases has been restrained since May, it will still take time for the economy torecover. Currently, it has recovered to the level of a 30% decrease from the previous fiscal year.
Cumulative production from January to June fell 43% from the previous fiscal year.
Finally, in Indonesia, we are heading toward recovery after bottoming out in May, but the pace of recovery is
extremely slow compared to other countries. The economic recovery was greatly delayed due to thepersistently high number of people with new coronavirus infections. Motorcycles are on a recovery trend, but
it will still take time for automobiles to recover.
The cumulative production volume from January to June decreased by 38%.

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13This is the trend of crude oil prices and exchange rates that affect our revenues. The green line shows Dubai
crude oil, and the blue line shows naphtha prices. Both Dubai crude oil and naphtha prices fell sharply in thesecond quarter of the fiscal year.
The dollar exchange rate for the orange line ranged from JPY105 to JPY107.

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In this economic environment, I would like to report on our performance in the first half of the fiscal year.
Mainly due to the impact of the coronavirus pandemic in the automobile industry, automotive parts
manufacturers continued to suspend operations and reduce production in various countries, which had asignificant impact on sales of special lubricants. Both sales and profits decreased.
Net sales were JPY11.348 billion, down 16.2% YoY. Gross profit was JPY3.536 billion, down 18.3% YoY.
Meanwhile, amid a YoY decrease of more than 30% in automobile production and shrinking general
consumption worldwide, sales of hot melt adhesives and lithium-ion battery membranes, which wererelatively unaffected by the coronavirus pandemic, were firm.
Mr. Takeuchi will explain the detailed information later.

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15This is the trend of net sales and gross profit margin. The bar graph shows sales, and the line graph shows
profit margins.
As I explained earlier, the main reason for the decrease in net sales is a decrease in automobile production
due to the impact of the coronavirus pandemic. The decrease in the gross profit margin was largely
attributable to a decrease in sales of high-value-added products in the automotive field and hard disk surface
lubricants.

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16This is a breakdown of sales by division. High-temperature lubricants in the Special Lubricants Division and
the Synthetic Lubricants Division were largely affected by the decline in automobile production.
Details of each division will be explained later.

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First, in the Special Lubricants Division, sales of all types of the oil declined. Domestically, amid a 30% decreasein automobile production, sales of die casting oils and fluids, in which we have a high market share, declined
at the same level as production volume.
As for cutting oils, although existing customers were affected by a decline in automobile production, sales
declined only 20% due to efforts to acquire new customers. Regarding forging oils, they have been affected
more than a decline in the number of automobiles manufactured due to inventory adjustments by customers.
Although production is gradually recovering at present, the impact of the new coronavirus infection is
expected to continue for a certain period of time, and even at the end of the fiscal year, the recovery is
expected to remain in the 90% level compared to the previous year.
Next is the status of overseas subsidiaries. First, in China, automobile production, which slowed sharply in thefirst quarter, January through March, began to recover sharply from April. As a result, automobile production
remained at a level of 16.8% lower than the previous fiscal year.
In Southeast Asia and India, the recovery in automobile production was significantly delayed, and total
automobile production in countries where our business base is located declined 49% YoY. As a result, our net
sales have also declined.
In the US, automobile production volume was similarly affected by a 39% YoY decrease.
As a result of these factors, consolidated net sales in the Specialty Lubricants Division declined 25.7% YoY.

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Next, in the Synthetic Lubricants Business, as I mentioned earlier, sales of high temperature lubricantsdeclined 15.9% due to the impact of a decrease in the number of automobiles manufactured, as was the casewith special lubricants.
Inventory securing for supply chain measures and the rapid recovery in China resulted in less impact than the
decline in automobile production.
On the other hand, sales of hard disk surface lubricants increased in the first quarter compared with theprevious year, against the backdrop of increased demand for hard disk drives for data centers. However, due
to the impact of customer shutdowns in the second quarter, sales declined 16% in the first half comparedwith the previous fiscal year. However, we currently expect a recovery to start from the third quarter onward.

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Next, in the Materials Business, sales of liquid paraffin for lithium-ion battery membranes and polystyrene
applications decreased slightly.
On the other hand, in cosmetics applications, sales declined significantly due to a decrease in inboundconsumption, voluntary restraints on outings, and mask wearing. As a result, overall sales of liquid paraffindeclined by 6%.
In addition, sales of sulphonate declined 22% due to a decrease in demand for metalworking oils affected bya decrease in the number of automobiles produced.
Overall sales in this business unit decreased by 10.1%.

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Next, in the Hot Melt Adhesives Business, applications for hygiene products, which were not affected by the
new coronavirus infections, were firm both domestically and overseas.
In addition, a sharp increase in demand for protective clothing for medical applications and an increase in
shipments of hot melts used in this production also contributed to higher sales for hygiene applications.
In the sticking field, although domestic sales increased due to favorable application for cargo labels with anincrease in demand for home delivery services, overseas sales declined due to the impact of sluggish sales bylarge customers in China.
For automotive interior, the sale of the hot melt declined both domestically and overseas due to a decreasein production volume. However, sales of air filters, such as air purifiers, expanded rapidly due to demand forthe prevention of new coronavirus infections, and revenues in other fields declined by only 15%.
Overall sales in this segment declined 2.3% YoY.
As at the time of the Lehman collapse, the Hot Melt Adhesives Business is characterized by a businessstructure that is less susceptible to the impact of the economic environment.

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21This is the trend in overseas sales and the overseas sales ratio. Sales in China, Thailand, and Indonesia declined
significantly in the first half of this fiscal year due to a decrease in automobile production volume caused by
the new coronavirus, as well as a trade conflict between the US and China last year.
We believe that sales in China will start increasing in the future as a result of steady recovery in automobile
production volume, expansion in new sales of low-volume coating die casting release agents and in cutting
oils, and firm demand for hot melt adhesives.
In the first half of the fiscal year, sales in China declined 9.7% YoY, but profits rose 36.4% as profitability
improved.
Profits in the US also rose YoY due to improvements in profitability.
On the other hand, in Southeast Asia and India, as explained so far, we assume that it will still take time for
earnings to recover.
Next, Mr. Takeuchi, our CFO, will explain our financial reports.

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Takeuchi: I would like to explain our financial reports.
Sales are as explained from Mr. Morozumi. Gross profit for the fiscal year was JPY3.536 billion, a decrease of
18.3% YoY, and an actual decrease of JPY790 million.
As with sales by business segment, the decline in profit in the Special Lubricants Division, which was severely
affected by the worldwide drop in automobile production due to the impact of the new coronavirus,
accounted for the majority of this decline, followed by the decline in profit in the Synthetic Lubricants Division,
which is the following factor.

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Next, this is our selling, general and administrative expenses. SG&A expenses decreased 6.6% YoY, to JPY3.436
billion, and the actual amount decreased by JPY242 million.
The majority of this decrease is attributable to the reduction in personnel expenses and travel expenses due
to self-restraint on domestic and overseas business trips, etc. However, because the decrease in sales is morethan the decrease in SG&A expenses, the ratio of selling, general and administrative expenses to net sales is30.2%, which is regrettably rising. The ratio of R&D expenses to net sales, which is shown every time, increasedslightly from 5.2% to 5.8%.
Next, operating income decreased by 84.5% YoY to an actual amount of JPY100 million due to changes in
SG&A expenses.
Although non-operating income or loss was negative JPY43 million, this is due to two main factors: an increasein foreign exchange losses compared to the previous fiscal year and a decrease in equity in earnings ofaffiliates.

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As a result, ordinary income fell sharply by 92% YoY to JPY58 million.
Since then, we have recorded a net loss on a consolidated basis of JPY90 million, despite the fact that we havebeen in the black in terms of our ordinary income, despite the impact of the initial loss of our Indian subsidiary,
which started operations last year.

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Next is profit and loss by region. As Mr. Morozumi mentioned, by region, revenues in Japan, China, Southeast
and Southeast Asia, North America, and the four regions declined. However, profits increased in China andNorth America.
In Japan, as we have mentioned so far, sales and profits declined due to the reduction in production of special
lubricants from automobiles and the subsequent decrease in synthetic lubricants.
Regarding China, despite a decrease in sales of special lubricants, operating income was JPY84 million, an
increase of JPY23 million from the same period of the previous fiscal year, due to steady sales of hot melts
and a decrease in selling, general and administrative expenses.
In Southeast and Southeast Asia, as in China, hot melts were robust, but the overall segment saw a decreasein sales due to a decrease in special lubricants.
In terms of profits, due in part to an increase in expenses in India, operating income in Southeast andSoutheast Asia was JPY12 million, a decrease of JPY69 million from the same period of the previous fiscal year.
In North America, as in other regions, sales declined due to a decrease in special lubricants. The increase insales of high-value-added products and the decrease in selling, general and administrative expenses resulted
in an operating income of JPY15 million, which means that we were able to return to profitability comparedto the previous fiscal year's loss.

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Next, I would like to explain the balance sheet. Total assets amounted to JPY26.61 billion, a decrease of
JPY1.518 billion from the end of the previous fiscal year. Most of this negative was due to a decrease in notes
and accounts receivable due to a decrease in sales.
In addition, cash and deposits increased by JPY552 million, but we increased deposits in preparation for the
impact of the new coronavirus infections at the beginning of the fiscal year.
Property, plant, and equipment decreased by JPY302 million. This was also affected by the progress ofdepreciation and the shrinkage caused by the appreciation of JPY when translating assets in local currencies
into JPY at overseas subsidiaries, which resulted in a decrease of JPY302 million.
In terms of liabilities, trade payables decreased by JPY1.198 billion, which is also a decrease in purchases due
to a decrease in sales.
Interest-bearing debt increased by JPY474 million, which was due to procuring funds to increase deposits.
In addition, accumulated comprehensive income in net assets was negative JPY200 million, which is a negative
foreign currency translation adjustment.

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Next, regarding the capital investment, the depreciation in the current fiscal year was JPY652 million, while
the capital investment was JPY326 million, so no major investment occurred in the current fiscal year. The
main investments are in the R&D facilities of the Head Office, and the manufacturing facilities of the domestic,Akoh, and Chiba plants.

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Regarding interest-bearing debt, as I mentioned earlier, the Company raised funds to increase deposits. As aresult, both short- and long-term interest-bearing debt amounted to JPY4.058 billion, and the ratio of interestbearing debt increased 2.5% to 15.2%.

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Cash flows are as you see. Of the operating cash flow of JPY696 million, we are funding our investment cash
flow. Due to the accumulation of deposits as mentioned earlier, the balance of cash and cash equivalents at
the end of August was JPY3.767 billion.

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As a management indicator, net income per share was negative JPY9.35, and the equity ratio was slightly
higher at 57.9% because of a reduction in total assets. The ratio of ordinary income to net sales is 0.5%.

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Next, please look at the earnings forecast. As I announced yesterday, at the time of the announcement of theend of the first quarter, I had once withdrawn my expectation and made it undetermined. However, there
has been some recovery in the current state of automobile production, particularly in Japan and China.
Accordingly, we have made a revised forecast considering the trend toward recovery in our sales on a monthly
basis.
We announced figures of JPY24 billion for net sales, JPY650 million for operating income, JPY750 million forordinary income, and JPY300 million for net income.
This concludes my presentation. Next, Mr. Morozumi will explain again.
Morozumi: From here, we are going to introduce new products and new fields.
This is a new business project in the R&D department. This project was launched with the aim of expanding
the synthetic technology and generation technology that MORESCO has cultivated to the life science field.
Currently, we are conducting joint research and development with research institutions including universities
on a variety of themes. Among them, I would like to introduce two themes today.

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The first is the joint research and development of an allergy treatment drug, which was released in a press
release on July 15. A research group led by Professor Yamashita of Ehime University has developed a newcompound that will become the basis of a drug for allergic diseases.
Based on this basic compound, MORESCO will fuse our synthetic and generation technologies to create new
drugs for allergy treatment that are more effective and safer. This development compound can be expected
to have a therapeutic effect on a wide range of allergic diseases, including bronchial asthma, allergic rhinosis,
and atopic dermatitis.
In the future, we will complete the evaluation of the efficacy of new compounds and drug dynamics inexperimental animals, acquire patents, and promote joint R&D for early commercialization.
The second is the joint research and development of a new compound to control autophagy, which was alsoannounced on July 28.
Autophagy research may lead to the prevention and treatment of various phenomena and diseases related
to lifestyle diseases and aging. In addition to making an investment in AutoPhagyGO Co., Ltd., which isengaged in this R&D, MORESCO is advancing joint R&D into new small molecular entities that control
autophagy.

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Next, these are the original techniques of MORESCO, which we obtained this year's patents. I would like toexplain about this nano-emulsion.
Nano-emulsion technology is capable of melting functional materials that are slightly soluble in water in thescale of six to 12 nanometers. Leveraging our technology makes it possible to dramatically reduce the size of
conventional nanotechnology, where the limit was 50 nanometers.
This miniaturization technology called nano-emulsion technology can greatly improve the ability of functional
components to absorb into the body. The tests on transdermal absorption of cosmetics have also shown
significant improvements in absorption performance compared to conventional products. Currently,
cosmetics manufacturers and pharmaceutical manufacturers have begun evaluations.

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34This is a low-VOC hot melt adhesive whose equipment for manufacturing has installed at the Tianjin Plant in
China. Conventionally, hot melt adhesives have been regarded as highly safe, environmentally friendly
adhesives that do not contain organic solvents. However, strictly speaking, it contains volatile organic
compounds derived from raw materials, VOCs. It was impossible to remove VOCs by the existing
manufacturing method. MORESCO has developed a new manufacturing process and succeeded in achieving
the world-class low-VOC.
The characteristic of this manufacturing process is that any thermoplastic hot melt can reduced VOCs. It alsoenables low odor by removing volatile components, and it has a great effect on odor problems, especially theremoval of acetic acid odor of EVA hot melt.
MORESCO will leverage this one-of-a-kind technology to develop new fields globally.

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Next, I will explain about surface lubricants for hard disks. Demand for hard disk drives has been declining inrecent years due in part to the emergence of SSDs. However, as the light-blue bar graph shows, the prevailingof ultra-high-speed communications by 5G and other factors are expected to increase the number of highcapacity near-line hard disk drives for cloud storage in the future.
The latest 16-terabyte hard disk drive has eight hard disks, and the storage capacity is four times that of theold four-terabyte hard disk drive and the number of hard disks mounted on this is twice as large. Our demandfor hard disk surface lubricants will increase in proportion to the increase in the number of hard disks.
In addition to high-performance lubricants used in near-line hard disks, we will also promote the evaluations
by our customers for high-heat-resistant hard disk surface lubricants for HAMR, a next-generation magnetic
disk storage technology.

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Finally, our CSR initiatives. Through the various initiatives described here, MORESCO will continue to boldly
take on challenges such as reducing environmental impact and conserving energy, with the aim of achieving
sustainable social development.

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In addition, we will continue to make efforts toward realizing a society in which all people can lead healthy
lives through our medical projects and other means.
This concludes the 63rd reporting of our financial results for the second quarter. Thank you very much.
Moderator: Thank you for your explanation.

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Question & Answer

Moderator: Well, let me move on to the question-and-answer session. The attendant will bring you themicrophone, so please raise your hand if you have any questions, and please also use this time to fill out thequestionnaire.
Well then, would you like to ask a question?
Sato: I am Sato from The Chemical Daily Co., Ltd.. Thank you so much for your presentation.
China and the US are currently on a recovery trend. In the current fiscal year, we are seeing particularly severebusiness performance in terms of profits. However, it is difficult to predict the economic situation in the
coming fiscal year, but I would like you to tell me what kind of forecasts and expectations you will have.
Morozumi: Regarding your question about the next term, as I have reported on our full-year earnings
forecasts, in the second half of the fiscal year, we have already exceeded the previous year's level ofautomobile production in China, Japan, and China in particular, and our current shipments of hot melts havebeen extremely favorable.
We expect this situation to continue into the next year and beyond. In addition, sales of cutting oil, newproducts, and other products are also trending steadily, so we think we can expect sales in China to continue
from next year onward.
We also assume that the recovery in automobile production at the end of this year may be around 95% at
most, but from next year onward, we are sure that it will be positive growth because it will be compared tothis fiscal year. Even if we compare it to last fiscal year, we assume that it will return to that level sufficiently.
In addition, our customers have stopped making capital investments, so from next year onward, for example,
we will again apply a small amount of coatings or develop environmentally conscious products. Now people
around the world are increasingly interested in the environment, so we assume that this will be a tailwind
rather than a headwind for us, so we have expectations for it from next year onward.
Sato: Do you think Southeast Asia will continue to face a somewhat difficult situation?
Morozumi: Absolutely. Regarding Southeast Asia, the recovery has still been slow, so at present, we hope that
it will be recovered to about 80% during this fiscal year. The situation and circumstances are slightly different
from those of other countries, in the context of the recovery of the economic environment.
Sato: Thank you for your answer. Finally, regarding the research and development that you explained at theend, is nano-emulsion the product that wraps like a capsule? I need more information on this.
Morozumi: Absolutely. That is the kind of things you imagine. For example, in an easy-to-understandexplanation, oil cannot melt into water. Even if there are very high-performance raw materials, those that
contain a large amount of oil are difficult to melt into water. But we can dissolve oil into water to a very small
extent, from six to 12 nanos, making it very easier to melt.
In such cases, for example, the technique is designed to make it easier for the body to absorb coenzyme Q10,
which is difficult to do.

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In this respect, there are not only foods, but also cosmetics, or drugs that can be absorbed from the skin. Evenif a drug is not injected, it is easy to absorb it from the skin. Some things are hard to absorb from the skin now.
The shape and size of the product are truly relevant, so by reducing the size of the product, it is possible to
make it easier to absorb it in the body.
Sato: I don’t know much about this. Do you mean that your technology enables the smaller size of coenzyme
Q10 to the size of molecule?
Morozumi: That's right. By emulsifying, it will become smaller to make it easier to melt. To put it simply, it will
be smaller under the capsule-like situation I mentioned earlier.
Sato: When the active ingredient is dispersed in a size of six to 12 nanometers.
Morozumi: Absolutely.
Sato: Will it be a dispersant of your company?
Morozumi: Rather than a dispersant, it’s going to play a role as a surfactant.
Sato: Understood. Thank you very much.
Moderator: Thank you very much. Would you like to ask any other questions?
Participant: I have some questions that slightly overlap with the ones that have already been asked. In termsof new products and technologies, I would like to know when you will see the timing of contributions to results.
The second question overlaps with most of the previous question Mr. Sato asked. I think Mr. Sato asked about
the change in demand in the second half of the year and after the next fiscal year by country. I wanted toknow about the future forecast by product.
Third, I recognize that the profit margin will be around 3%, lower than the level of your cruising speed. Whendo you expect this to return to a high single-digit profit margin? In addition, I recognize that your company
generates operating income of approximately JPY2 billion-level. When do you anticipate returning to thatlevel?
Morozumi: Let me start by answering your first question about the timing of the launch of new products andnew technologies. First of all, regarding medical materials, it will take time for us to eventually obtain approval.
Now, as I have explained earlier, we have completed the evaluation of the drug dynamics in animal
experiments, and our primary goal is to acquire patents. Therefore, we hope that this will be implemented
within the fiscal year under our current plan.
In addition, the medical materials project is now being evaluated by cosmetics manufacturers and medical
product manufacturers, so depending on their evaluation, we think there is a good possibility that it will leadto results from the next fiscal year.
In addition, as for hot melt low VOCs and low-odor hot melts, we have already started operations in China, sosales of them have already started.
In the next generation of magnetic disks, which is called HAMR, recording technologies, and this will become
our newest surface lubricants product. The drive makers’ schedules are not yet clear. However, it seems that
all of them are in fierce competition for this development, so there is a possibility that it will be launched as
early as next year. This is only a prediction. Regarding lubricants, we are now finalizing products that can be

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developed and are ready to be delivered to our customers, so it depends on when our customers' assessments
will begin.
The second one is regarding the situation by country.
Participant: By product.
Morozumi: Sorry for the mistake. By product. Currently, special lubricants are being most affected on
Automobile-Related Business, so in terms of special lubricants, our company has a high market share in the
Asian region for release agents and operating fluids. These are most proportional to the number of
automobiles produced. This is the case in any country, I mean, in Asia.
However, in respect of cutting oil, the market share is still low for us in the global market. Regarding thesemarkets, our new products are highly regarded in the market, so we believe that we will be able to increase
sales in any country in Asia.
Regarding the hot melt, we have recently expanded into India and are currently producing hot melts in Japan,
Indonesia, China, and India. In India in particular, our future goal is to increase sales of sanitary materials, so
we assume that sales of hot melts will increase as the market grows.
Regarding synthetic lubricating oils, as we just mentioned, SSDs are on the rise, particularly for hard disks. At
present, demand for hard disks is declining, but as I explained earlier, it is expected that the number of harddisks used for hard disk drives will increase worldwide. Therefore, as the number of our products and harddisks increases in proportion, we assume that the market will expand more if 5G and other technologies
increases the speed in the future.
Regarding liquid paraffin, it will depend to some extent on how lithium-ion batteries are deployed, and as amarket, we manufacture the largest production volume domestically. We do not expect significant changes
in the market.
However, due to the trend of lithium-ion batteries, we expect shipments for lithium-ion batteries to continue
to grow if lithium-ion batteries are increasingly installed in vehicles.
Takeuchi: Regarding the recovery of our profits, there have been two factors behind the expansion of sales
and profits. The first is M&A. We have made several acquisitions of companies in the field of release agentsfor die casting. Then, the other is that we have developed new areas and built up sales. In the 2010s, sales
and profits grew due to these two factors. Another factor is hard disk lubricants. Although this is a small
amount of sales, our profits are extremely high, and this provided significant support in terms of profits. These
three factors have contributed to our progress in the 2010s.
On that side, now it is a little leveling off, and as you can see from the earnings before coronavirus, the factthat it has stalled for a few years is that hard disk lubricants have been slightly sluggish, replacing SSDs for
personal use.
Furthermore, in that sense, we have not conducted the development of new areas, and we have not done
M&A deals for several years, which are these factors behind our stagnation.
In this sense, as Morozumi has explained, regarding hard disks, we can greatly expect new 5G and one fordata centers, so after a pause, we think that they can become another pillar of our revenues and earnings.

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41Regarding the expansion into new areas, India is currently struggling, particularly due to coronavirus. Thissituation may continue to be severe in the short term. However, in the medium term, India is a potential areafor growth that exceeds that of China. I believe that this is the driving force for the next growth.
Regarding the M&A, there are not many agreements that have been concluded. We have been struggling
particularly in Europe and the US. In order to expand in Europe and the US, we think it is necessary to form
alliances with other companies as well as M&A, so we have been exploring various ways of doing this, and if
this works well, we will be able to drive growth again. We cannot tell you when, but we believe we candefinitely return to the level we had a few years ago.
Participant: It may be hard to say exactly when. Apart from the next fiscal year, it will be time to return tosome extent in the fiscal year after that. Is it also too early?
Takeuchi: That's right. We are now in the process of drafting the next medium-term plan and three-year plan,so we will discuss and create it within the Company. It is a little difficult to say at this stage. We are sorry. We
plan to announce a new medium-term plan at the end of February next year, so we hope you will wait untilthat time.
Participant: I'm sorry but I have another question. Regarding this dividend, I think you are going to pay a
dividend that exceeds your profits in the current fiscal year. Do you intend to focus on a stable dividend to
pay out a dividend of JPY40 this fiscal year, and do this based on JPY40 from next year onward?
Takeuchi: It is exceedingly difficult to talk about the next fiscal year, but our stance so far is that we willcontinue to work as hard as possible on stable dividends and once we have paid out dividends.
Participant: Even if it takes time for earnings to recover, you are going to pay stable dividends?
Takeuchi: We hope so. However, this is somewhat difficult to answer clearly.
Participant: Thank you very much.
Moderator: Thank you very much. I would like to conclude with a question from the next person. Is there
anyone who has any questions? Is that okay with you? Then, I will finish the questions and answers around
here.
This concludes MORESCO Corporation’s financial results briefing for second quarter of the fiscal year ending
February 2021. We greatly appreciate your gathering here today during your busy time.
Morozumi: Thank you very much.
Takeuchi: Thank you very much.
[END]______________
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